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FIRST NATL. BANK OF CHICAGO v. ACCO USA

December 30, 1993

THE FIRST NATIONAL BANK OF CHICAGO AS TRUSTEE OF THE INSTITUTIONAL REAL ESTATE FUND F, et al., Plaintiffs,
v.
ACCO USA, INC.-IBT RETIREMENT PLAN, et al., Defendants.


Zagel


The opinion of the court was delivered by: JAMES B. ZAGEL

This case emanates from First National Bank of Chicago's ("the Bank") attempt to satisfy matured redemption requests from its Institutional Real Estate Fund F ("Fund F") by distributing, to the withdrawing participant plans, cash and quitclaim deeds to undivided fractional interests in each of the Fund F real estate parcels. *fn1" The defendant plans rejected the proposed distribution in early 1993. The Bank subsequently filed a complaint for injunctive and declaratory relief, compelling each of the defendant plans to accept their fractional shares of Fund F real property, and directing the Trustee to manage the refused fractional shares under the terms of the Trust Instrument during the pendency of this litigation.

 The defendants move to dismiss the complaint initially for failure to state a claim pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) and ultimately for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). *fn2" For the reasons set forth below, the defendants' motion to dismiss Counts I and III is denied, and the motion to dismiss Count II is granted.

 Count II states that the Bank, as Trustee, advised the defendants that they were required by law to accept the proposed distribution and that their refusal would be interpreted as a direction to maintain the fractional interests in Fund F until ordered otherwise by the court. The Bank requests a judgment against each defendant plan, declaring that the rejected fractional interests remain in Fund F and that the Bank, as Trustee, retains its full powers and protection under the Trust agreement until the Court orders otherwise. *fn3"

 The defendants urge that the entire complaint must be dismissed as moot because there is no justiciable case or controversy in Article III terms and, therefore, this Court has no federal jurisdiction. The defendants argue that the case or controversy between the parties ceased to exist once the Bank decided to terminate Fund F and liquidate its properties pursuant to the Termination plan. By letter dated April 29, 1993, the Bank advised the OCC of its intent to terminate Fund F and attached a copy of the Termination Plan. *fn4" Under the Plan, the Bank as trustee will establish a "Fund F Liquidating Account" of Fund F assets (excluding the Redeemed Former Participants' rejected fractional interests), will sell all Fund F properties "as soon as feasible and prudent," and will periodically and ratably distribute cash available after expenses, including budgeted capital improvements and operation costs. With respect to "The Refused Fractional Interests of the Redeemed Former Participants," the Termination Plan provides as follows:

 
The Trustee's Termination Plan does not and should not be understood to operate[,] to affect or override the claims, if any, of any Redeemed Former Participant. As noted above on January 15, 1993, the Trustee made a ratable distribution of cash and fractional interests in property to the Redeemed Former Participants. The Trustee asked each Redeemed Former Participant to confirm that pending resolution of the distribution by a court or otherwise the Trustee is empowered to deal with the refused fractional interests of the Redeemed Former Participants under the same terms as the Trust Instrument. Confirmation was received from each redeemed Former Participant. Consequently, pending resolution by a court or otherwise, the Trustee continues to retain the power and duties to administer the refused fractional interests of the Redeemed Former Participants in accordance with the terms of the Trust Instrument. The Trustee will administer the fractional interests refused by the Redeemed Former Participants within an "Interim Liquidation Account." The Trustee intends to jointly manage the Interim Liquidation Account and the Fund F Liquidating Account for sale purposes and for other necessary investment decisions until such time as the distribution of the rejected fractional interests is resolved by a court or otherwise. (Emphasis added.)

 "Mootness can kill a lawsuit at any stage." Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 39 L. Ed. 2d 505, 94 S. Ct. 1209 (1974). A case becomes moot "'when the issues presented are no longer "live" or the parties lack a legally cognizable interest in the outcome.'" Murphy v. Hunt, 455 U.S. 478, 481, 71 L. Ed. 2d 353, 102 S. Ct. 1181 (1982). *fn5" To test for mootness, a court must ask whether "the relief sought, if granted, would make a difference to the legal interests of the parties (as distinct from their psyches, which might remain deeply engaged with the merits of the litigation)." Air Line Pilots Ass'n Int'l v. UAL Corp., 897 F.2d 1394, 1396 (7th Cir. 1990). As Judge Posner noted in Air Line Pilots, the mootness test functions on a continuum, and:

 
it is usually possible to conjure up a set of facts under which the relief sought would make a difference to the parties. But if it would be a very little difference, then to economize on judicial resources as well as to give expression to policies thought inherent in Article III the case will be declared moot and relief withheld.

 Id. at 1396-97.

 The Bank insists that the case is not moot. It argues that the declaration (sought in Count II) will resolve a present dispute over the legal basis for the Trustee's continuing powers over the refused fractional interests and the Trustee's ability to deduct its fees. The complaint, however, mentions nothing about a dispute over Trustee fees, and a "live" controversy only exists if the Trustee's exercise of power is contested, regardless of the legal basis for that exercise. See Air Line Pilots, 897 F.2d at 1397 (the mootness criterion seems to imply that "it can make little difference whether a practice is unlawful for one or for several reasons, provided only that it is indeed unlawful"). The Termination Plan acknowledges (and the defendants agree) that the defendants do not contest the Bank's exercise of power as trustee over the refused fractional interests under the terms of the Trust Instrument. Furthermore, the declaration sought in Count II is embodied in the Termination Plan. The Termination Plan provides that the fractional interests in Fund F properties rejected by the defendants remain subject to the terms of the Trust Instrument and, consequently, the Bank as trustee retains the power and duties to administer these assets under the Trust Instrument. This Court "is not empowered to decide moot questions, or abstract propositions, or to declare, for the government of future cases, principles or rules of law which cannot affect the result as to the thing in issue in the case before it." California v. San Pablo & T. R. Co., 149 U.S. 308, 314, 37 L. Ed. 747, 13 S. Ct. 876 (1893). Count II, therefore, is dismissed as moot.

 The question still remains whether the Bank's resolution to terminate Fund F and sell its assets, including the refused fractional interests in the "Interim Liquidation Account," moots the ERISA claims in Count I (assuming, of course, the claims were pleaded properly). According to the defendants, the Bank's Termination Plan has made it unnecessary and factually impossible for this Court to issue an injunction compelling the defendants to accept the proposed fractional interests in Fund F real estate. The Bank, however, maintains that the defendants' "illegal acts" in refusing the distribution of fractional interests gave rise to an actual controversy; these acts constituted a breach of ERISA and the Trust Instrument, and this lawsuit is a reasonable effort to remedy those breaches. The Bank also insists that the Termination Plan does not render the complaint moot because there still remain approximately 40 properties that have not been sold and a decision by this Court will "make a difference to the legal interests of the parties."

 It is not difficult to envision how an injunction compelling the defendants to accept fractional interests in property would make a difference to the parties. The Termination Plan provides that unless a court determines otherwise, the fractional interests will remain in the "Interim Liquidation Account" until sold. If this Court grants the injunction, the defendants legally will be entitled to the fractional interests (which the Bank undoubtedly will tender) instead of a ratable share in cash after expenses under the Termination Plan. Whether dismissal of Count I is proper, however, depends on where, along Posner's "mootness continuum," this case falls. This depends on the essence of the ERISA claims and whether the "difference" resulting from the injunction will be so little that judicial economy and the policies underlying Article III dictate dismissal of Count I as moot.

 The defendants urge that Count I: (1) impermissibly seeks an advisory opinion regarding the Bank's exercise of its fiduciary duty in satisfying the withdrawal requests; (2) fails to state a claim against the defendants for breach of a fiduciary duty under ERISA; and (3) cannot state a claim for violation of OCC regulations. They contend the Bank actually seeks a preliminary approval of its redemption scheme (approval which the OCC refused to give) and, in effect, a declaration of nonliability for any future alleged breach of the Bank's fiduciary duties in satisfying the matured withdrawal requests. Although the history of this case makes it more likely than not that the Bank filed ...


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